MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING

Transcription

1 MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements have been prepared by RBC Global Asset Management Inc. ( RBC GAM ) as manager of the RBC ETFs (the ETFs ) and approved by the Board of Directors of RBC GAM. We are responsible for the information contained within the financial statements. We have maintained appropriate procedures and controls to ensure that timely and reliable financial information is produced. The financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ) (and they include certain amounts that are based on estimates and judgments). The significant accounting policies, which we believe are appropriate for the ETFs, are described in Note 3 to the financial statements. Damon G. Williams, FSA, FCIA, CFA Chief Executive Officer RBC Global Asset Management Inc. Heidi Johnston, CPA, CA Acting Chief Financial Officer RBC GAM Funds August 10, Unaudited Interim Financial Statements The accompanying interim financial statements have not been reviewed by the external auditors of the ETFs. The external auditors will be auditing the annual financial statements of the ETFs in accordance with Canadian generally accepted auditing standards.

2 INTERIM FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF Fair % of Net Holdings Security Cost Value Assets GLOBAL EQUITIES Consumer Discretionary Shaw Communications Inc. $ 805 $ Energy ONEOK Inc Plains GP Holdings LP Industrials Aurizon Holdings Ltd Macquarie Infrastructure Corp TAV Havalimanlari Holding AS Telecommunication Services AT&T Inc Bezeq The Israeli Telecommunication Corp., Ltd Emirates Telecommunications Group Co., PJSC KDDI Corp Nippon Telegraph & Telephone Corp NTT DoCoMo Inc Proximus Rogers Communications Inc Telenor ASA Telkom SA SOC Ltd Telstra Corp., Ltd Utilities AES Corp Ameren Corp Canadian Utilities Ltd CenterPoint Energy Inc Centrica PLC China Resources Power Holdings Co., Ltd Chubu Electric Power Co., Inc EDP Energias do Brasil SA Endesa SA Exelon Corp Hawaiian Electric Industries Inc Innogy SE Just Energy Group Inc Korea Electric Power Corp Fair % of Net Holdings Security Cost Value Assets Utilities (cont.) Osaka Gas Co., Ltd. $ 404 $ SCANA Corp SSE PLC TransAlta Renewables Inc TOTAL GLOBAL EQUITIES Less: Transaction costs (25) TOTAL INVESTMENTS $ OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ The accompanying notes are an integral part of the financial statements.

3 FINANCIAL STATEMENTS (unaudited) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF Statements of Financial Position (unaudited) (in $000s except per unit amounts) (see note 2 in the generic notes) December ASSETS Investments at fair value $ $ Cash Due from investment dealers 2 6 Dividends receivable, interest accrued and other assets TOTAL ASSETS LIABILITIES Due to investment dealers 2 Distributions payable 29 Accounts payable and accrued expenses 12 5 TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ $ Investments at cost $ $ Statement of Comprehensive Income (unaudited) (in $000s except per unit amounts) For the period ended (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Dividends $ 411 Other income (loss) 1 Securities lending revenue (see note 7 in the generic notes) 2 Net realized gain (loss) on investments 484 Net gain (loss) on foreign currencies and other net assets (17) Change in unrealized gain (loss) on investments (844) TOTAL INCOME (LOSS) 37 EXPENSES (see notes ETF Specific Information) Management fees 43 Transaction costs 39 Withholding tax 48 TOTAL EXPENSES 130 INCREASE (DECREASE) IN NAV $ (93) INCREASE (DECREASE) IN NAV PER UNIT $ (0.13) NAV PER UNIT $ $ The accompanying notes are an integral part of these financial statements.

4 FINANCIAL STATEMENTS (unaudited) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF Statement of Cash Flow (unaudited) (in $000s) For the period ended (see note 2 in the generic notes) CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in NAV $ (93) ADJUSTMENTS TO RECONCILE NET CASH PROVIDED BY (USED IN) OPERATIONS Interest for distribution purposes Net realized loss (gain) on investments (484) Change in unrealized loss (gain) on investments 844 (Increase) decrease in accrued receivables (43) Increase (decrease) in accrued payables 7 Cost of investments purchased (46 513) Proceeds on sales of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (16 363) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of redeemable units Cash paid on redemption of redeemable units (1 068) Distributions paid to holders of redeemable units (306) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ Net increase (decrease) in cash for the period 44 Cash (bank overdraft), beginning of period 27 CASH (BANK OVERDRAFT), END OF PERIOD $ 71 Interest received (paid) $ Dividends received, net of withholding taxes $ 320 The accompanying notes are an integral part of these financial statements.

5 FINANCIAL STATEMENTS (unaudited) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF Statement of Changes in NAV (unaudited) (in $000s) For the period ended (see note 2 in the generic notes) Total NAV AT BEGINNING OF PERIOD $ INCREASE (DECREASE) IN NAV (93) Early redemption fees Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units (1 068) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS Distributions from net income (277) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (277) NET INCREASE (DECREASE) IN NAV NAV AT END OF PERIOD $ The accompanying notes are an integral part of these financial statements.

6 NOTES TO FINANCIAL STATEMENTS ETF SPECIFIC INFORMATION (unaudited) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF General information (see note 1 in the generic notes) The investment objective of the ETF is to provide unitholders with exposure to the performance of a diversified global portfolio of high-quality equity securities of companies that own or operate infrastructure assets that will provide regular income and that have the potential for long-term capital growth. The ETF was started September 14, Financial instrument risk and capital management (see note 4 in the generic notes) Concentration risk (%) The table below summarizes the ETF s investment portfolio (after consideration of derivative products, if any) as at: Investment mix December Global Equities Utilities Telecommunication Services Industrials Energy Consumer Discretionary Other Net Assets Total Currency risk (% of net assets) The table below summarizes the ETF s net exposure (after hedging, if any) to currency risk as at: Currency December United States dollar Euro Japanese yen Pound sterling Norwegian krone 3.8 Turkish new lira 3.8 Israeli new shekel 3.6 South Korean won 3.3 Brazilian real 2.8 South African rand UAE dirham 1.7 Hong Kong dollar 1.3 Australian dollar Philippine peso 0.4 Swedish krona 2.1 Swiss franc 1.3 Thailand baht 0.9 Currency December Malaysian ringgit 0.5 Mexican peso 0.4 Czech koruna 0.2 Total As at, if the Canadian dollar had strengthened or weakened by 1% in relation to the above currencies, with all other factors kept constant, the ETF s net assets may have decreased or increased, respectively, by approximately 0.8% (December 31, %). In practice, actual results could differ from this sensitivity analysis and the difference could be material. Other price risk (% impact on net assets) The table below shows the impact of a 1% change in the broad-based index (noted below) on the ETF s net assets, using a 9-month historical correlation of data of the ETF s return and the index, with all other factors kept constant, as at: MSCI World Total Return Net Index (CAD) + or Due to the fact that the ETF was in existence for less than six months prior to December 31, 2016, no comparative disclosure is provided because there is insufficient data, and any resulting calculation of the impact on net assets of the ETF using historical correlation between the ETF s return and a broad-based index could be materially misleading. Since historical correlation may not be representative of future correlation, actual results could differ from this sensitivity analysis and the difference could be material. Fair value hierarchy ($000s except % amounts) (see note 3 in the generic notes) The following is a summary of the inputs used as of and December 31, Level 1 Level 2 Level 3 Total Equities Total financial instruments % of total portfolio December 31, 2016 Level 1 Level 2 Level 3 Total Equities Total financial instruments % of total portfolio For the periods ended and December 31, 2016, there were no transfers of financial instruments between Level 1, Level 2 and Level 3. Please see the generic notes at the back of the financial statements.

7 NOTES TO FINANCIAL STATEMENTS ETF SPECIFIC INFORMATION (unaudited) RBC QUANT GLOBAL INFRASTRUCTURE LEADERS ETF Management fees (see note 8 in the generic notes) RBC GAM is paid a management fee per annum of the NAV by the ETF as compensation for its services. The management fee of the ETF is calculated at 0.55% annually, before GST/HST, of the daily net asset value of the ETF. Taxes ($000s) (see note 6 in the generic notes) The non-capital and capital losses as at December 31, 2016 for the ETF were approximately: Capital losses 22 Non-capital losses Redeemable units (000s) (see note 5 in the generic notes) The NAV per unit is arrived at by dividing the net asset value of the ETF by the total number of units outstanding at the end of each trading day of the ETF. The ETF s capital is managed in accordance with the investment objective as outlined in the Prospectus. Securities lending revenue ($000s except %) (see note 7 in the generic notes) Fair value of securities on loan and collateral received as at: Fair value of securities loaned Fair value of collateral received The table below provides a reconciliation of the gross revenue generated from the securities lending transactions of the ETF to the securities lending revenue disclosed in the Statement of Comprehensive Income. $ % Gross revenue RBC IS (paid) (1) (27) Tax withheld ETF revenue 2 73 For the period ended (see note 2 in the generic notes) Opening units 450 Issued number of units 850 Reinvested number of units Redeemed number of units (50) Ending number of units Transaction costs ($000s except %) Transaction costs, including brokerage commissions, in consideration of portfolio transactions for the period ended: $ % Total transaction costs Related-party brokerage commissions* Commission arrangements * See note 8 in the generic notes. Commission arrangements are part of commission amounts paid to dealers. The ETF uses commission arrangements (formerly known as soft dollars ) for research and/or order execution goods and services. Please see the generic notes at the back of the financial statements.

8 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) 1. The ETFs The RBC ETFs, the exchange-traded funds ( ETF or ETFs ), are open-ended mutual fund trusts governed by the laws of the Province of Ontario and governed by a Master Declaration of Trust. RBC GAM is the manager, trustee and portfolio manager of the ETFs and its head office is located at 155 Wellington Street West, 22nd Floor, Toronto, Ontario. These financial statements were approved for issuance by the Board of Directors of RBC GAM on August 10,. The units of the ETFs are listed on the Toronto Stock Exchange ( TSX ). Investors may purchase or sell units on the TSX in the same way as other securities listed on the TSX. ETF RBC 1-5 Year Laddered Corporate Bond ETF RBC 1-5 Year Laddered Canadian Bond ETF RBC Target Corporate Bond Index ETF RBC Target 2018 Corporate Bond Index ETF RBC Target 2019 Corporate Bond Index ETF RBC Target 2020 Corporate Bond Index ETF RBC Target 2021 Corporate Bond Index ETF RBC Target 2022 Corporate Bond Index ETF RBC Target 2023 Corporate Bond Index ETF RBC Canadian Preferred Share ETF RBC Quant Canadian Dividend Leaders ETF RBC Quant Canadian Equity Leaders ETF RBC Quant U.S. Dividend Leaders ETF TSX Ticker Symbol RBO RLB RQE RQF RQG RQH RQI RQJ RQK RPF RCD RCE RUD RUD.U Index* FTSE TMX Canada Maturity Corporate Bond Index FTSE TMX Canada 2018 Maturity Corporate Bond Index FTSE TMX Canada 2019 Maturity Corporate Bond Index FTSE TMX Canada 2020 Maturity Corporate Bond Index FTSE TMX Canada 2021 Maturity Corporate Bond Index FTSE TMX Canada 2022 Maturity Corporate Bond Index FTSE TMX Canada 2023 Maturity Corporate Bond Index ETF RBC Quant U.S. Dividend Leaders (CAD Hedged) ETF RBC Quant U.S. Equity Leaders ETF RBC Quant U.S. Equity Leaders (CAD Hedged) ETF RBC Quant European Dividend Leaders ETF RBC Quant European Dividend Leaders (CAD Hedged) ETF RBC Quant EAFE Dividend Leaders ETF RBC Quant EAFE Dividend Leaders (CAD Hedged) ETF RBC Quant EAFE Equity Leaders ETF RBC Quant EAFE Equity Leaders (CAD Hedged) ETF RBC Quant Emerging Markets Dividend Leaders ETF RBC Quant Emerging Markets Equity Leaders ETF RBC Strategic Global Dividend Leaders ETF RBC Strategic Global Equity Leaders ETF RBC Quant Global Infrastructure Leaders ETF TSX Ticker Symbol RUDH RUE RUE.U RUEH RPD RPD.U RPDH RID RID.U RIDH RIE RIE.U RIEH RXD RXD.U RXE RXE.U RLD RLE RIG RIG.U Index* * The indices are trademarks of FTSE TMX Debt Capital Markets Inc. ( FTDCM ). TMX is a trademark of TSX Inc. ( TSX ) and is used under licence. FTSE is a trademark of the London Stock Exchange Group companies (the Exchange ) and is used by FTDCM under licence. These marks have been licensed for use for certain purposes to RBC GAM. The ETFs are not sponsored, endorsed, sold or promoted by FTDCM, FTSE International Limited, the Exchange or TSX (together, the Licensor Parties ). The Licensor Parties make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the indices and/or the figures at which the said indices stand at any particular time on any particular day or otherwise. The indices are compiled and calculated by FTDCM and all copyright in the values of the indices and their constituent lists vests in FTDCM. The Licensor Parties shall not be liable (whether in negligence or otherwise) to any person for any error in the indices and the Licensor Parties shall not be under any obligation to advise any person of any error therein. 2. Financial year/period The information provided in these financial statements and notes thereto is for the six-month periods ended and 2016, or as at and December 31, In the year an ETF or a series is established, period represents the period from inception to of that fiscal year.

9 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) 3. Summary of significant accounting policies These financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ), which include estimates and assumptions made by management that may affect the reported amounts of assets (primarily valuation of investments), liabilities, income and expenses during the reported periods. Actual results may differ from estimates. The significant accounting policies of the ETFs, which are investment entities, are as follows: Classification of Financial Assets and Liabilities The ETFs financial assets and financial liabilities, other than derivatives, are designated at fair value through profit or loss at inception, as those financial assets and liabilities are managed together and their performance evaluated on a fair value basis in accordance with the ETFs documented investment strategy. Derivatives are classified as held for trading and measured at fair value through profit or loss. Redemption units are measured at their respective redemption values. All other assets and liabilities are measured at amortized cost. Unrealized gains (losses) arising on derivatives are shown on the respective ETF s Statements of Financial Position and such amounts are included in the Statements of Comprehensive Income in Change in unrealized gain (loss) on investments, where applicable. Realized gains arising on derivatives during a period are included in the Statements of Comprehensive Income in Other derivatives, where applicable. Refer to note 3 for net gains (losses) on financial instruments by category. Classification of Redeemable Units The ETFs have multiple features across the series of the ETFs. Consequently, the ETFs outstanding redeemable units are classified as financial liabilities in accordance with the requirements of IAS 32 Financial Instruments: Presentation. Unconsolidated Structured Entities The ETFs may invest in other Funds managed by the manager or an affiliate of the manager ( Investee Funds ). The Investee Funds are determined to be unconsolidated structured entities, as decision making in the Investee Fund is not governed by the voting rights or other similar rights held by the ETF. The investments in Investee Funds are subject to the terms and conditions of the offering documentation of the respective Investee Funds and are susceptible to market price risk arising from uncertainties about future values of those Investee Funds. The Investee Funds objectives are generally to achieve long-term capital appreciation and/or current income by investing in a portfolio of securities and other funds in line with each of their documented investment strategies. The Investee Funds apply various investment strategies to accomplish their respective investment objectives. The Investee Funds finance their operations by issuing redeemable units which are puttable at the unitholder s option, and entitle the unitholder to a proportional stake in the respective Fund s net assets. The ETFs do not consolidate their investment in underlying funds but account for these investments at fair value. The manager has determined that the ETFs are investment entities in accordance with IFRS 10 Consolidated Financial Statements, since the ETFs meet the following criteria: (i) The ETFs obtain capital from one or more investors for the purpose of providing those investors with investment management services, (ii) The ETFs commit to their investors that their business purpose is to invest funds solely for the returns from capital appreciation, investment income or both and (iii) The ETFs measure and evaluate the performance of substantially all of their investments on a fair value basis. Therefore, the fair value of the investment in the Investee Fund is included in the Schedule of Investment Portfolio and included in Investments at fair value in the ETF s Statements of Financial Position. The change in fair value of the investment held in the Investee Fund is included in Change in unrealized gain (loss) on investments in the Statements of Comprehensive Income. Determination of Fair Value The fair value of a financial instrument is the amount at which the financial instrument could be exchanged in an arm s-length transaction between knowledgeable and willing parties under no compulsion to act. In determining fair value, a three-tier hierarchy based on inputs is used to value the ETFs financial instruments. The hierarchy of inputs is summarized below: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices), including broker quotes, vendor prices and vendor fair value factors; and Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs).

10 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) Changes in valuation methods may result in transfers into or out of an investment s assigned level. Investments are recorded at fair value, which is determined as follows: Equities Common shares, preferred shares and exchangetraded funds are valued at the closing price recorded by the security exchange on which the security is principally traded. In circumstances where the closing price is not within the bid-ask spread, management will determine the points within the bid-ask spread that are most representative of the fair value. Fixed-Income and Debt Securities Bonds are valued at the closing price quoted by major dealers or independent pricing vendors in such securities. Forward Contracts Forward contracts are valued at the gain or loss that would arise as a result of closing the position at the valuation date. Any unrealized gain or loss at the close of business on each valuation date is recorded as Change in unrealized gain (loss) on investments in the Statements of Comprehensive Income. The receivable/ payable on forward contracts is recorded separately in the Statements of Financial Position. Realized gain (loss) on foreign exchange contracts is included in Net gain (loss) on foreign currencies and other net assets in the Statements of Comprehensive Income. Fair Valuation of Investments The ETFs have procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these fair valuation procedures, the ETFs primarily employ a marketbased approach, which may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information for the investment to determine its fair value. The ETFs may also use an incomebased valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments, but only if they arise as a feature of the instrument itself. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. All security valuation techniques are periodically reviewed by the Valuation Committee ( VC ) of the manager and are approved by the manager. The VC provides oversight of the ETFs valuation policies and procedures. Foreign Exchange The value of investments and other assets and liabilities in foreign currencies is translated into Canadian dollars at the rate of exchange on each valuation date. Purchases and sales of investments, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. Realized foreign exchange gains/losses are included in Net gain (loss) on foreign currencies and other net assets in the Statements of Comprehensive Income. Functional Currency The ETFs have their subscriptions, redemptions and performance denominated in Canadian dollars and, consequently, the Canadian dollar is the functional currency for the ETFs. Investment Transactions Investment transactions are accounted for as of the trade date. Transaction costs, such as brokerage commissions, incurred by the ETFs are recorded in the Statements of Comprehensive Income for the period. The unrealized gain and loss on investments is the difference between fair value and average cost for the period. The basis of determining the cost of portfolio assets, and realized and unrealized gains and losses on investments, is average cost which does not include amortization of premiums or discounts on fixed-income and debt securities with the exception of zero coupon bonds. Income Recognition Dividend income is recognized on the ex-dividend date and interest for distribution purposes is coupon interest recognized on an accrual basis and/or imputed interest on zero coupon bonds. Other income (loss) includes income from income trusts. Distributions received from income trusts are recognized based on the nature of the underlying components, such as income, capital gains and return of capital. Other income received from underlying funds includes income earned by an ETF from investments in underlying ETFs. Any premiums paid or discounts received on the purchase of zero coupon bonds are amortized on a straight line basis. Increase (Decrease) in Net Assets Attributable to Holders of Redeemable Units per Unit Increase (decrease) in net assets attributable to holders of redeemable units per unit in the Statements of Comprehensive Income represents the increase (decrease) in net assets attributable to holders of redeemable units, divided by the average units outstanding during the period.

11 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) Foreign Currencies The following is a list of abbreviations used in the Schedule of Investment Portfolio: AUD Australian dollar CAD Canadian dollar CHF Swiss franc DKK Danish krone EUR Euro GBP Pound sterling HKD Hong Kong dollar JPY Japanese yen NOK Norwegian krone NZD New Zealand dollar SEK Swedish krona SGD Singapore dollar USD United States dollar 4. Financial instrument risk and capital management RBC GAM is responsible for managing each ETF s capital, which is its net assets and consists primarily of its financial instruments. An ETF s investment activities expose it to a variety of financial risks. RBC GAM seeks to minimize potential adverse effects of these risks on an ETF s performance by employing professional, experienced portfolio managers, daily monitoring of the ETF s holdings and market events and diversifying its investment portfolio within the constraints of its investment objectives. To assist in managing risks, RBC GAM also uses internal guidelines, maintains a governance structure that oversees each ETF s investment activities and monitors compliance with the ETF s investment strategies, internal guidelines and securities regulations. Financial instrument risk, as applicable to an ETF, is disclosed in its Notes to Financial Statements ETF Specific Information. Liquidity risk Liquidity risk is the possibility that investments in an ETF cannot be readily converted into cash when required. An ETF is exposed to liquidity risk to the extent that it is subject to daily redemptions of redeemable units. Since the delivery of redemptions is in the form of securities, an ETF is not exposed to any significant liquidity risk. Liquidity risk is managed by investing the majority of an ETF s assets in investments that are traded in an active market and that can be readily disposed. In accordance with securities regulation, an ETF must maintain at least 90% of its assets in liquid investments. In addition, an ETF aims to retain sufficient cash and cash equivalent positions to maintain liquidity, and has the ability to borrow up to 5% of its net assets. All non-derivative financial liabilities, other than redeemable units, are due within 90 days. Any securities deemed to be illiquid are identified in the Schedules of Investment Portfolio. Credit risk Credit risk is the risk that a loss could arise from a security issuer or counterparty not being able to meet its financial obligations. The carrying amount of investments and other assets represents the maximum credit risk exposure as disclosed in an ETF s Statements of Financial Position. The fair value of fixed-income securities includes a consideration of the creditworthiness of the debt issuer. Credit risk exposure is mitigated for those ETFs participating in a securities lending program (see note 7). RBC GAM monitors each ETF s credit exposure and counterparty ratings daily. Rating data is provided by the Licensor Parties. Concentration risk Concentration risk arises as a result of net financial instrument exposures to the same category, such as geographical region, asset type, industry sector or market segment. Financial instruments in the same category have similar characteristics and may be affected similarly by changes in economic or other conditions. Interest rate risk Interest rate risk is the risk that the fair value of an ETF s interest-bearing investments will fluctuate due to changes in market interest rates. The value of fixed-income and debt securities, such as bonds, is affected by interest rates. Generally, the value of these securities increases if interest rates fall and decreases if interest rates rise. Securities with a stated maturity date beyond the target maturity year of the ETF have an effective maturity date in the target year of the ETF, as determined with the rules based on methodology developed by the Licensor Parties. Currency risk Currency risk is the risk that the value of investments denominated in currencies, other than the functional currency of a Fund, will fluctuate due to changes in foreign exchange rates. The value of investments denominated in a currency other than the functional currency is affected by changes in the value of the functional currency in relation to the value of the currency in which the investment is denominated. When the value of the functional currency falls in relation to foreign currencies, then the value of the foreign investments rises. When the value of the functional currency rises, the value of the foreign investments falls.

12 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) Other price risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate or currency risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting all instruments traded in a market or market segment. 5. Redeemable units The beneficial interest in the ETFs is divided into equal interests of one class referred to as outstanding units. Each ETF is authorized to issue an unlimited number of redeemable and transferable units, each of which represents an equal, undivided interest in the net asset value of the ETF. Each unit outstanding shall participate pro rata in any distributions made, other than management fee distributions, and in the event of termination of the ETF, in the net assets of the ETF. On any trading day, an underwriter or designated broker may place a subscription or redemption order for an integral multiple of the prescribed number of units of an ETF. If the order is accepted, the ETF will issue or redeem units to or from the underwriter or designated broker within three trading days thereafter. For each prescribed number of units issued or redeemed, the underwriter or designated broker must deliver or receive payment consisting of: a) a basket of applicable securities for each prescribed number of units; and b) cash in an amount sufficient so that the value of the basket of the applicable securities and cash delivered is equal to the net asset value of the prescribed number of units plus the distribution price adjustment, if applicable, of the ETF. The distribution price adjustment is a distribution that has been declared by the ETF and has reduced the net asset value but has not yet been reflected in the market price. A trading day is each day on which the TSX is open for trading. A unitholder is entitled on any trading day to redeem units for cash at a redemption price of 95% of net asset value per unit of the ETF s units at the next valuation following receipt of the cash redemption request. To be effective on a particular trading day, a cash redemption request must be received by such time as RBC GAM may, from time to time, determine on that trading day. If a cash redemption request is received later than the prescribed time on a trading day or a day which is not a trading day, the cash redemption request shall be deemed to be received as of the next trading day. The net asset value per unit is arrived at by dividing the net asset value of the ETF by the total number of units outstanding at the end of each trading day of the ETF. The capital of the ETFs is managed in accordance with the investment objective as outlined in the Prospectus. 6. Taxes The ETFs qualify as mutual fund trusts or unit trusts as defined in the Income Tax Act (Canada). In general, the ETFs are subject to income tax; however, no income tax is payable on net income and/or net realized capital gains which are distributed to unitholders. In addition, for mutual fund trusts, income taxes payable on net realized capital gains are refundable on a formula basis when units of the ETFs are redeemed. It is the intention of the ETFs to pay out all net income and realized capital gains each year so that the ETFs will not be subject to income taxes. Accordingly, no provision for income taxes is recorded. Net investment income and capital gains are distributable to the unitholders in amounts determined under the provisions of the Declaration of Trust on a monthly or quarterly basis. All distributions, other than management fee distributions, shall be credited to the unitholder pro rata in accordance with the number of units held by them on record date of the distribution. Management fee distributions shall be credited to the unitholder entitled thereto. Capital losses are available to be carried forward indefinitely and applied against future capital gains. Non-capital losses may be carried forward to reduce future taxable income for up to 20 years. 7. Securities lending revenue Certain of the ETFs lend portfolio securities from time to time in order to earn additional income. Income from securities lending is included in the Statements of Comprehensive Income of the ETF. Each ETF will have entered into a securities lending agreement with its custodian, RBC Investor Services Trust ( RBC IS ). The aggregate market value of all securities loaned by an ETF cannot exceed 50% of the assets of an ETF. The ETF receives collateral, with an approved credit rating of at least A, of at least 102% of the value of the securities on loan. The ETF is indemnified by RBC IS for any collateral credit or market loss. As such, the credit risk associated with securities lending is considered minimal.

13 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) 8. Administrative and other related-party transactions Manager, Trustee and Portfolio Manager RBC GAM is an indirect wholly owned subsidiary of Royal Bank of Canada ( Royal Bank ). RBC GAM is the manager, trustee and portfolio manager of the ETFs. RBC GAM is responsible for the ETFs day-to-day operations, holds title to the ETFs property on behalf of its unitholders, provides investment advice and portfolio management services to the ETFs and appoints underwriters or designated brokers for the ETFs. RBC GAM is paid a management fee by the ETFs as compensation for its services. The management fee is calculated and accrued on a daily basis and is based on a percentage of the net asset value of the ETFs. The fee plus applicable taxes are accrued daily and paid monthly in arrears. RBC GAM in turn pays certain operating expenses of the ETFs. These expenses include regulatory filing fees and other day-to-day operating expenses including, but not limited to, recordkeeping, accounting and fund valuation costs, custody fees, audit and legal fees and the cost of preparing and distributing annual and interim reports, prospectuses and investor communications. The ETFs also pay certain operating expenses directly, including the costs related to the Independent Review Committee of the ETFs and the cost of any new government or regulatory requirements introduced and any borrowing costs (collectively, other fund costs ), and taxes (including, but not limited to, GST/HST). Certain ETFs may invest in units of other Funds managed by RBC GAM or its affiliates ( underlying mutual funds ). The ETF s ownership interest in underlying mutual funds is disclosed in the Notes to Financial Statements ETF Specific Information. RBC GAM or its affiliates may earn fees and spreads in connection with various services provided to, or transactions with, the ETFs, such as banking, brokerage, securities lending, foreign exchange and derivatives transactions. RBC GAM or its affiliates may earn a foreign exchange spread when unitholders switch between ETFs denominated in different currencies. The ETFs also maintain bank accounts and overdraft provisions with Royal Bank for which Royal Bank may earn a fee. Affiliates of RBC GAM that provide services to the ETFs in the course of their normal business, all of which are wholly owned subsidiaries of Royal Bank of Canada, are discussed below. Custodian and Valuation Agent RBC IS is the custodian and valuation agent for the ETFs. RBC IS is responsible for certain aspects of day-to-day administration including holding the assets and the daily calculation of the net asset value of the ETFs. RBC IS earns a variable fee based on the value of assets under custody and a fixed fee for other valuation and administrative services. Designated Broker and Underwriter RBC Dominion Securities Inc. is a designated broker and an underwriter for the ETFs. As such, RBC Dominion Securities Inc. may subscribe or redeem units of the ETFs. Broker and Dealer The ETFs have established or may establish standard brokerage agreements and dealing agreements at market rates with related parties such as RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, NBC Securities Inc. and Royal Bank of Canada. Other Related-Party Transactions Pursuant to applicable securities legislation, the ETFs relied on the standing instructions from the Independent Review Committee with respect to the following related-party transactions: Related-Party Trading Activities (a) trades in securities of Royal Bank; (b) investments in the securities of issuers for which a related-party dealer acted as an underwriter during the distribution of such securities and the 60-day period following the conclusion of such distribution of the underwritten securities to the public; and (c) purchases of debt securities from or sales of debt securities to a related-party dealer, where it acted as principal. The applicable standing instructions require that Related- Party Trading Activities be conducted in accordance with RBC GAM policy and that RBC GAM advise the Independent Review Committee of a material breach of any standing instruction. RBC GAM policy requires that an investment decision in respect of Related-Party Trading Activities (i) is made free from any influence of Royal Bank or its associates or affiliates and without taking into account any consideration relevant to Royal Bank or its affiliates or associates, (ii) represents the business judgment of the

14 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see ETF Specific Information) portfolio manager, uninfluenced by considerations other than the best interests of the ETFs, (iii) is in compliance with RBC GAM policies and procedures, and (iv) achieves a fair and reasonable result for the ETFs. 9. Future accounting changes The following IFRS standard has been issued, but is not yet in effect: In July 2014, the International Accounting Standards Board finalized the reform of financial instruments accounting and issued IFRS 9 (as revised in 2014), which contains the requirements for a) the classification and measurement of financial assets and financial liabilities, b) impairment methodology and c) general hedge accounting. IFRS 9 (as revised in 2014) will supersede IAS 39 Financial Instruments: Recognition and Measurement in its entirety upon its effective date. The new standard, which becomes effective for annual periods beginning on or after January 1, 2018, is not expected to have a significant impact on the ETFs.